CPC| Order For Rateable Distribution Of Property Among Various Decree Holders Bars Them From Setting-Off Their Individual Debt: Kerala High Court

A Division Bench of Justice Anil K. Narendran and Justice P.G Ajithkumar held that in a case where rateable distribution is ordered by the Court, the decree-holder only has the right to set off a proportionate amount he is entitled to.

"A conjoint reading of Section 73 and Order XXI Rule 72 would show that whenever a set-off is allowed, the order of rateable distribution shall have to be reckoned with and only after ascertaining the proportionate amount entitled by the decree holder-purchaser, his entitlement to set off can be decided. The provisions do not convey a meaning that in a case where rateable distribution is ordered by the Court, there can be an unbridled right to the decree holder-purchaser to set off the entire decree debt due to him. What he is entitled is only to set off the proportionate amount he is entitled on the rateable distribution."

The appellant had obtained a decree for the realisation of an amount from respondents 2 to 4 and thereby brought 29 cents of their property on sale. Since respondents 2 to 4 objected to the sale of the entire property, the Execution Court found that the sale of 18 cents was enough to satisfy the decree. In the auction, the property was purchased by the appellant and the debt due to him was allowed to be set off against the auction price. After set off, the balance sale consideration was deposited by the appellant.

Meanwhile, the 1st respondent approached the Court seeking realisation of money from respondents 2 and 4 attaching the same 29 cents of land. Being aware of the appellant's pending application against the same property, the 1st respondent requested the court to initiate steps for rateable distribution of the property after its sale, as provided under Section 73 of CPC.

However, by then the sale had been completed. Thus, the 1st respondent sought to set aside the sale arguing that the Execution Court allowed the appellant's application to participate in the auction and to allow set-off without notice to the 1st respondent. It was also argued that despite the order for rateable distribution, permission to bid and set off was granted to the appellant in total negation of the provisions of Order XXI Rule 72 and that it resulted in substantial injury to the 1st respondent.

The Execution Court set aside the sale holding that the order of rateable distribution was in vogue despite confining the auction to 18 cents. It was also held that the appellant obtaining permission to participate in the auction and to set off the decree debt due to him against the sale price without giving notice to the 1st respondent was not only irregularity but also a fraudulent act.

Advocates Suresh Kumar Kodoth and K.P Antony Binu appearing for the appellant contended that once the sale was confined to 18 cents of land and the remaining 11 cents was excluded, the order of rateable distribution lost its significance, and therefore, the same cannot be a reason to set aside the sale. It was submitted that the sale was conducted after necessary publication which itself is enough notice to everyone including the 1st respondent. Further, he argued it was his right to set off the decree debt due to him; since the sale was confined to a part of the property alone.

Advocates P. Bijimon, N. Suresh, Jacob Samuel, K.T. Sebastian, Priya Sreedharan and P. Geena Babu appeared for the respondents.

The Court found that the sale was liable to be vitiated for the following reasons:

• According to Section 63, if the same property is attached in execution of more than one decree for realisation of money, the court of the highest grade has to sell the property. Section 73 enables different decree holders to have a rateable distribution of the judgment debtor's assets and it is the obligation of the Execution Court to rateably distribute the reminder among the sharing decree-holders. To have the right of rateable distribution, the decree holders should have obtained decrees against the common judgment debtor and initiated execution proceedings before receipt of the assets. Here, these conditions were satisfied and the 1st respondent had obtained an order of rateable distribution with notice to the appellant.
• The contention that the order for rateable distribution would not bind the parties after confining the sale to 18 cents of the property was wrong, especially since the question of what part of the property should be sold arose after the order for rateable distribution was passed. There is no case for the appellant that ever during that process the order for rateable distribution was meddled with. An order lawfully passed by a Court cannot be obliterated or made nugatory on account of subsequent developments, so long as it is not set aside, recalled or annulled in an appropriate proceeding.
• While making deposit of the balance sale price, he can deduct the balance amount eligible for set off. If the amount eligible for set-off is less than 25%, set off to the extent he is entitled can alone be allowed and he has to deposit the remainder of the 25%, immediately after the sale and the balance within the stipulated time. Violation thereof, undoubtedly, will vitiate the sale.
• When the sale price fetched is less than the debts, the Execution Court should find out the proportionate amount entitled by each of the decree holders and the decree holder-purchaser can set off only the amount he is proportionately entitled to. Here, the appellant was allowed to set off the entire decree debt, which she was not entitled to. So the process of conduct of the sale has become irregular being violative of Rule 72 (2) of Order XXI.
• Once rateable distribution is ordered, it is always desirable to consolidate all the related Execution Petitions and are proceeded jointly. No doubt, the Execution Court is not prohibited from giving permission to one of the decree holders to participate in the auction and to set off. But while doing so, notice shall be given to all the decree holders. Such a notice was not given to the 1st respondent in this case. That amounted to an act of fraud, whereof the process of the conduct of the sale became vitiated.
• Under Order XXI Rule 90, any person entitled to share in a rateable distribution of assets or whose interest is affected by the sale is entitled to apply for setting aside the sale. The 1st respondent, therefore, is a person entitled to apply for setting aside the sale.
• The appellant contended that having obtained a decree in 2015, she shall not be denied to enjoy the fruits of it merely due to an irregularity in the process of the court. In view of the maxim actus curiae neminem gravabit (court shall prejudice no one), a flaw on the part of the Court shall not prejudice the right of the 1st respondent.

As such, the Court found no reason to interfere with the order of the Execution Court. The appeal was thereby dismissed.

Case Title: Subaida Ebrahim v. Moosa C & Ors.

Citation: 2022 LiveLaw (Ker) 294

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